It's a wonderful (new) life

On June 12, the U.S. Supreme Court issued its ruling in POM Wonderful LLC v. Coca-Cola Co., holding that competitors may bring a Lanham Act claim challenging a product label regulated under the Food, Drug, and Cosmetic Act (FDCA).

In the case at issue, POM Wonderful, which sells a pomegranate-blueberry juice blend alongside its POM Wonderful 100 percent pomegranate juice and other juices, had sued competitor Coca-Cola under Section 43(a) of the Lanham Act, alleging that Coca-Cola’s “Pomegranate Blueberry” juice blend misleads consumers into believing that its product consists predominantly of pomegranate and blueberries when it contains only contains trace amounts of those juices.

Coca-Cola countered that POM Wonderful’s claim should be barred because Coca-Cola’s Pomegranate Blueberry label complied with FDCA regulations. The district court agreed with Coca-Cola, ruling that the FDCA and its regulations precluded POM’s Lanham Act challenges to the name and label of Coca-Cola’s product. The 9th Circuit agreed.

In a unanimous decision, the Supreme Court reversed the 9th Circuit, holding that compliance with the FDCA does not preclude a Lanham Act claim. At the outset of its opinion, the Court clarified its view that POM Wonderful's case is not a preemption case, because it does not raise the question whether state law is preempted by federal law.

Instead, the issue, according to the Court, is whether a cause of action under one federal statute (Lanham Act) is precluded by the provisions of another (FDCA). The Court reasoned that the two statutes complement each other in the federal regulation of misleading food and beverage labels, as each has its own scope and purpose. The Lanham Act protects commercial interests against unfair competition, while the FDCA protects public health and safety. Moreover, the Court explained, the two statutes complement each other with respect to remedies—in that enforcement of the FDCA is largely committed to the U.S. Food & Drug Administration (FDA), which may not have the expertise in assessing market dynamics that competitors possess.

In addition, the FDCA expressly preempts certain state law claims. The lack of such a provision in the FDCA concerning the Lanham Act further convinced the Court that Congress intended the FDCA and Lanham Act to be complementary.

The Court also noted that the FDA does not preapprove food and beverage labels under the FDCA and instead relies on enforcement actions, warning letters and other measures in order to accomplish many of its goals. Accordingly, the Court expressed concern that precluding Lanham Act claims would result in less effective protection in the food and beverage industry than in less regulated industries—a result, the Court reasoned, that Congress likely did not intend.

The Court concluded that “allowing Lanham Act suits takes advantage of synergies among multiple methods of regulation” and is “consistent with the congressional design to enact two different statutes, each with its own mechanisms, to enhance the protection of competitors and consumers.”

POM decision: Potential impact on class actions

Before the Supreme Court issued its opinion, the POM Wonderful v. Coca-Cola case had had the potential to significantly impact the spate of ongoing class action lawsuits filed against various companies’ allegedly deceptive product labels. Defendants often battle these cases by arguing that the doctrine of primary jurisdiction applies: in other words, that consumers should defer to the FDA to speak out on such labeling issues. So, class action lawyers were hoping that the Court’s opinion might contain language that they could use to argue in support of their lawsuits (many of which are currently bogged down in procedural and jurisdictional red tape in the state courts). Hoping that the Supreme Court would hold in POM's favor, class action attorneys presumed they would be able to leverage some of the Court’s reasoning to argue that federal oversight of food and drink labels does not preempt their state-law labeling class action claims.

Unfortunately for these attorneys, the Court explicitly limited the scope of its ruling to the interplay between the regulatory authority of federal regulators and federal rules that affect similar areas, stating at the outset that the POM Wonderful dispute does not involve questions of whether the FDCA preempts state laws.

Certainly, class action attorneys can now try to use the Court’s POM Wonderful opinion to argue that the FDA will have to speak authoritatively with the force of law for primary jurisdiction to apply. What successes they might have with that argument is up in the air. In the wake of the Supreme Court’s opinion, companies can rely on the Lanham Act to attack arguably deceptive marketing claims, but consumer class action litigators are still be left to contend with a variety of state laws that defendants argue are preempted by federal FDA rules. They may still attempt to cling to the Court’s central finding that compliance with FDA rules alone does not mean that a label cannot be misleading.

Its effects on class action lawsuits notwithstanding, as a practical matter, the industry will now likely see an increase in product label Lanham Act litigation. Under the Court’s decision in POM Wonderful, a competitor can maintain a claim under Section 43(a) that is complementary to another federal statute which may cover the same area of regulation. When combined with the Court’s recent holding in Lexmark v. Static Control, which defined the limits of a suit brought by a non-competitor, so long as the plaintiff satisfies the so-called Zone-of-Interest and Proximate Cause Tests, the Court’s holdings may signal a loosening of the Court’s requirements for Lanham Act Section 43(a) suits.

This would be counter to the Court’s prior rulings limiting the reach of such claims. For example, see Dastar Corp. v. Twentieth Century Fox Film Corp., (unaccredited copying of an non-copyrighted work not a false designation of origin); Traffix Devices Inc. v. Marketing Displays Inc., (functionality); and Wal-Mart Stores Inc. v. Samara Bros. Inc., (distinctiveness).

Only time will tell. But after the ruling against Coca-Cola in the POM Wonderful case, companies should not only look to comply with FDA labeling regulations but should also be aware of the broader requirements under the Lanham Act: that is, to not “misrepresent the nature, characteristics, qualities, or geographic origin” of their products or services. Although food and beverage makers still have to comply with the FDA's labeling requirements, such compliance will not immunize them from suits from competitors if their labels are misleading. As a result, manufacturers are well advised to reexamine their packaging to confirm that their product descriptions and claims are not deceptive.